CNBC: Guggenheim's Scott Minerd Sounds Alarm About Markets, Says 'We are in the Ludicrous Season!'

February 17, 2020

Article by Jesse Pound in CNBC financial

Guggenheim Partners Global CIO Scott Minerd said in a letter to clients that the elevated prices in financial markets show a “cognitive dissonance” from economic reality that has created a dangerous bubble among debt assets.

Liquidity from the Federal Reserve and other central banks and increased demand for bonds from ETFs are masking the problems in the market, Minerd said, and the coronavirus outbreak is an example of an economic shock that could prick the bubble. The money manager said GDP growth in China in the first quarter could be as bad as negative 6%.

“This will eventually end badly. I have never in my career seen anything as crazy as what’s going on right now,” Minerd said.

The U.S. stock market has shrugged off the initial sell-off that occurred as the outbreak gained steam, and bond yields continue to hug historical lows. Minerd pointed to low yields for bonds rated BBB or lower and oversubscribed sales of new bonds as examples of a credit market that is overly bullish.

“In the markets today, yields are low, spreads are tight, and risk assets are priced to perfection, but everywhere you look there are red flags,” Minerd said in the letter.

“We are either moving into a completely new paradigm, or the speculative energy in the market is incredibly out of control. I think it is the latter. I have said before that we have entered the silly season, but I stand corrected,” Minerd said at the end of his letter. “We are in the ludicrous season.”

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